Fraud in trade and ocean marine insurance

15 May 2013 Markus Spielmann

Agenda

15.05.2013 2 Fraud in trade and ocean marine insurance, Markus Spielmann

1. Definition of terms

2. History

3. Fraud loss figures

4. The persons involved

5. Types of fraud

6. Countermeasures

7. Future outlook

Definition of terms

What is fraud ?

Distinctions and definitions vary, depending on relevant legal system

Often difficult to prove in court

In maritime trade / marine insurance, English legal definitions frequently used due to traditional focus on English law

3 Fraud in trade and ocean marine insurance, Markus Spielmann 15.05.2013

Definition of terms

What is fraud ?

Difficult to distinguish from other types of theft such as

secret taking of third-party property

violent appropriation, i.e. robbery / piracy

Fraud is theft through deception

property is handed over "voluntarily"

4 Fraud in trade and ocean marine insurance, Markus Spielmann 15.05.2013

History

Historical accounts are rare, but fraud was documented even in

ancient times

> written evidence dates back to 360 B.C.

> sporadic local incidents up to the 1960s

> disproportionate increase since the 1970s

> more violent offences / piracy since 2008/2009

Cartel of silence among villains and victims

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15.05.2013

Fraud loss figures

An estimation of the exact cost of insurance fraud is difficult:

According to the American Insurance Information Institute, the insurance industry estimates insurance fraud at about 10 percent of the property/casualty/marine insurance industrys incurred losses and loss adjustment expenses.

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The persons involved

Seller / purchaser

Shipowner, charterer

Master / crew

Banks / lenders

Insurance companies

Brokers / agents

Original Assured

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The persons involved

Methods of committing fraud

Use of false / forged documents regarding the cargo / carrying vessel Supplying false information or concealing information/ facts Fraudulent bankruptcy / breach of contract Setting up bogus firms to conclude contracts Issue of blank, but signed, B/Ls Issue of two differing B/Ls for one cargo

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Types of fraud

Basic patterns of (insurance) fraud

Documentary fraud

Container fraud

Scuttling / arson

Deviation, charter fraud, phantom ships

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Types of fraud

10 Fraud in trade and ocean marine insurance, Markus Spielmann

Documentary fraud

15.05.2013

Types of fraud

Documentary fraud

Perpetrator is typically the seller

Agrees sale of goods on Letter-of-Credit basis

Submits manipulated documents to the bank

Ships

worthless materials in the correct weight

goods of a lower quality than agreed

absolutely nothing

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Types of fraud

Documentary fraud

On the consignee side:

false authorization to take delivery is presented imposters pose as lawful consignees

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Countermeasures

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Countermeasures

14 Fraud in trade and ocean marine insurance, Markus Spielmann

Careful underwriting

do not get blinded by premium expectations

check into local economic conditions

watch out for "critical signals"

check facts and plausibility of the offer

dare to query facts with broker/policyholder

for Insurers:

15.05.2013

Countermeasures

for Insurers

Careful claims management

refuse to be pressurized

request and check the relevant documents

look out for critical signals

make plausibility checks

check facts on route / means of transport, cargo

utilize independent investigators

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Countermeasures

Monitor worldwide claims tendencies

Cooperate with organizations such as IMB, national / international police forces

Exchange information with other parties

Exchange information with insureds

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for insurers

15.05.2013

Countermeasures

Careful underwriting

avoid being blinded by premium expectations

take local economic conditions into account

look out for "critical signals"

check facts and plausibility

Query facts from brokers /ceding company

17 Fraud in trade and ocean marine insurance, Markus Spielmann

for reinsurers

15.05.2013

Countermeasures

Monitor worldwide claims tendencies Cooperate with organizations such as IMB, national / international police forces Exchange information with other insurers and reinsurers Exert pressure on ceding companies for more critical underwriting

18 Fraud in trade and ocean marine insurance, Markus Spielmann

for reinsurers

15.05.2013

Future outlook

People who want to make money through fraud employ modern methods

and are willing to explore new technologies.

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Thank you very much for your attention

Markus Spielmann

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Fraud in trade and oceanmarine insuranceAgendaDefinition of termsDefinition of termsHistoryFraud loss figuresThe persons involvedThe persons involvedTypes of fraudTypes of fraudTypes of fraudTypes of fraudCountermeasuresCountermeasuresCountermeasuresCountermeasuresCountermeasuresCountermeasuresFuture outlookThank you very much for your attention